Find my iPhone
On find my iPhone the tracker always says my iPhone is about 2 blocks away from where it really is. Why is this and how do I fix it?
You may not be able to fix it. Find My iPhone does not find the exact location of the device, but only the general location. The blue circle indicates the wider radius when you see that on the screen.
iOS 5: Understanding Location Services.
Depending on your device and available services, Location Services uses a combination of cellular, Wi-Fi, and GPS to determine your location. If you're not within a clear line of sight to GPS satellites, your device can determine your location using crowd-sourced Wi-Fi3 and cell tower locations.
Applications that can display your location on the screen, including Maps, indicate your current (approximate) location using a blue marker. If your location can’t be determined precisely, a blue circle also appears around the marker. The size of the circle depends on how precisely your location can be determined—the smaller the circle, the greater the precision.